Archive for the ‘Fed Financial Policy’ Category

Captain Rick: The Dow Jones and S&P hit new highs on September 18, 2013, as the U.S. Federal Reserve announced it will continue bottle feeding the U.S. economy with $85 billion debt dollars each month…for at least another month…to cast the impression that the American economy is doing well.

The fact is that the American economy is not doing well at all. GDP is limping along at a very anemic rate, not even keeping up with population growth. Real unemployment is near record levels. The Fed’s ‘Quantitative Easing’ program is doing nothing more than covering up a very sick economy that would all but die without the nursing bottle, while significantly increasing the U.S. national debt. The Fed’s continued ‘economic bottle feeding’ is not improving the American economy. It is only prolonging and amplifying America’s monumental financial downfall in the future…one that is shaping up to reduce America to a third world country.

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401K’s are posting temporary inflated values.  Intelligent investors will reap what ever ‘phony’ profits have accumulated by switching them to a cash or prime fund before the Fed’s money feeding bottle dries up.

America’s representatives in DC are setting stage to again focus on the staggering $17 trillion U.S. national debt and find a way to prevent yet another pending government shutdown on October 1, 2013. America can not continue spending nearly twice what it receives in revenue for much longer. Those that think that it can…or that these days of phony economic well being will last forever…are simply living in a dream world.

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Associated ATRIDIM NEWS JOURNAL Report Categories:

U.S. Debt Crisis

Fed Financial Policy

Captain Rick’s Fiscal Cliff Course 101

Economy

Dow Jones

Captain Rick’s Investment 101

Stock and Bond Market

Captain Rick: PIMCO’s Bill Gross says that ultra low interest rate policies and ongoing bond buying programs like ‘Quantitative Easing’ around the world aren’t working. Bill refers to it as a global financial system that is "beginning to resemble a leukemia patient with New Age chemotherapy, desperately attempting to cure an economy that requires structural as opposed monetary solutions." He is challenging the Federal Reserve and other central banks to become part of the solution rather than part of the problem.

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Bill Gross, founder and co-chief investment officer of bond giant PIMCO. He is often called the world’s ‘bond king’.

I recognize Bill as one of the worlds most intelligent minds concerning everything related to bonds. Bonds help make our world grow. Bonds are the life blood of our cities, states and countries of our world. 

Bill writes a monthly ‘Investment Outlook’ news letter. His June report is entitled “Wounded Heart”, a nod to Bonnie Raitt’s 2002 tune. It is one of his finest. I will do my best to sum up his eloquent words of wisdom for the U.S. and other countries including Japan, England and Europe who are practicing ‘Quantitative Easing’ fiscal programs that are not working.

Excerpts from Bills “Wounded Heart” report:

“While the global central banks’ policies have stabilized economies, they haven’t succeeded in returning them to old normal growth rates”

"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts"

And to Fed chief Ben Bernanke’s claims that once economic growth has been restored to normal levels, financial markets can also return to normal interest rates and returns, Gross has a few stern words:
"Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%"
"Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution."

To investors, Gross advises to reduce risk as the Fed continues to try to mend a wounded heart with blood that lacks the necessary oxygen. "Investors should look for a pacemaker to follow a less risky, lower returning, but more life sustaining path."

Read the entire Investment Outlook: “Wounded Heart”  by William H. Gross:  http://www.pimco.com/EN/Insights/Pages/Wounded-Heart.aspx

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Associated ATRIDIM NEWS JOURNAL Report Categories:

Fed Financial Policy: https://atridim.wordpress.com/category/fed-financial-policy/

Investment 101: https://atridim.wordpress.com/category/investment-101/

Stock and Bond Market: https://atridim.wordpress.com/category/stock-bond-market/

Captain Rick: A global rally in stocks came to an abrupt halt Thursday with a 7% plunge on Japan’s Nikkei index … the biggest one-day drop since the 2011 earthquake and nuclear disaster.
European markets fell by 2% with Germany’s DAX down 2.4% and France’s CAC 40 down 2.1%. This was preceded yesterday by U.S. markets dropping about 0.8%.

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What caused this? Investors were rattled for three big reasons:

Japan: The Japanese rally had gone too far too fast. The Nikkei has surged by more than 70% over the last 12 months, far outpacing other markets.
‘Abenomics’, Japan’s version of ‘Quantitative Easing,’ has pumped massive amounts of money printed with red ink into the economy to create an image that the economy is doing good, when it is not.
The Bank of Japan’s policies can’t sustain the rally indefinitely, and Japanese companies will have to start reporting better earnings to bolster investment confidence.

U.S.: The Federal Reserve released minutes from its latest policy meeting revealing that some members of the monetary policy committee were looking to taper off the ‘Quantitative Easing’ bond-buying program as early as June. That is bad news for investors who have been energized by the Fed’s $85 billion of phony red money being pumped into the American economy each month to make it look like the economy is healthy, when it really is not.

China: Weak economic data. The latest numbers from China showed the country’s manufacturing sector contracted in May, contrary to expectations for expansion, reinforcing concerns about slowing growth in the world’s second biggest economy. This is a reality that is beginning to come to light because America, Europe and most of the world have economies that are actually in decline once we strip away the façade of programs like ‘Abenomics’ and ‘Quantitative Easing’.

World Stock Market gains in past 12 months
Japan: 69% (after todays huge loss)
Eurozone: 33%
England: 27%
Australia: 23%
Hong Kong: 21%
U.S.: 18%
Canada: 10%.
Mexico: 8%
Brazil: 3%
China: – 4%

Captain Ricks Analysis: Which markets are likely to go up … or down?
The stock markets in the countries at the bottom of the list (less than 15% gain) are on the strongest footing and are more likely to go up than down.
The stock markets in the countries at the top of the list (more than 40% gain) are significantly over invested with highly inflated values and face significant potential for decline.
The stock markets in the countries in the middle (15% – 40% gain) are in uncertain territory with over investment and inflated values, especially those in the upper half of this range. These markets are more likely to decline than rise, especially those in the upper half of this range.

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Associated ATRIDIM NEWS JOURNAL Report Categories:

Japan: https://atridim.wordpress.com/category/japan/

China: https://atridim.wordpress.com/category/china/

Stock & Bond Market: https://atridim.wordpress.com/category/stock-bond-market/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

All Reports: https://atridim.wordpress.com/

Captain Rick: Here we go again. Treasury Secretary Tim Geithner warned Congress in a letter that U.S. borrowing will hit the debt ceiling on Monday, and that Treasury will begin using ‘extraordinary measures’ to prevent government spending from exceeding the legal limit of $16.394 trillion. On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling. That allows for spending over $13 billion a day through next Monday. It makes my head spin thinking about how fast the U.S. spends money and that over $1 trillion of what it spends each year is borrowed money (deficit spending) that adds to the U.S. National Debt.

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The extraordinary measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds. All told, the extraordinary measures can create about $200 billion of headroom under the limit — normally about two months worth of borrowing.

If America begins going over the ‘Fiscal Cliff’ on Tuesday, January 1, as all indications point to now, $600 billion in annual spending cuts and tax revenue increases will kick in and slow the generation of debt to half speed. This would double the period of time to 4 months remaining before extraordinary measures would be exhausted.

After the extraordinary measures run out, Treasury won’t be able to pay all the country’s bills in full and on time. At that point, the United States will run the very real risk that it could default on some of its obligations, such as making interest payments on America’s National Debt which total a staggering $260 billion per year. This would have a severe negative impact on America’s credit rating which would have a ripple effect of making it more costly for the U.S. Treasury to borrow money. At some point foreign governments, like Japan and China, which hold large sums of American debt, would slow lending or even curtail it. The American economy would grind to a halt and be thrust into a deep recession, dragging all world economies along with it.

Other solutions could be to default on Social Security, Medicare, Medicaid and other government program payments. We all can comprehend the immediate, massive, destructive effect that would have on society.

Thus, we can conclude that default of any kind  is not an acceptable solution. The only immediate solution will be to increase the national debt again. Those who have studied Captain Rick’s FISCAL CLIFF Course 101, know that its just a matter of time before raising the national debt ceiling will no longer be a workable option. This is why it is so important that the ‘Fiscal Cliff’ spending cuts and tax revenue increases take effect on January 1.

Captain Rick’s Dream for America

I find the manner in which the President and Republicans and Democrats in Congress are trading off fiscal ‘trinkets’, in an effort to fool America that they can come up with a better solution than the ‘Fiscal Cliff’ to solve America’s serious problem of thirst for debt … almost laughable.

The President and Congress should stop playing fiscal games. The current members of Congress should stay home on vacation for the rest of the year. A new slate of legislators will be sworn in on January 3, hopefully with a work ethic that is void of politics (I am holding my breath), and work towards raising the debt ceiling along with the creation of Fiscal Cliff 2 … another painful round of spending cuts and tax revenue increases that would finally balance America’s budget and eliminate deficit spending. Ideally, it would start on January 1, 2014, when the next raise of the national debt ceiling will most likely be required. Hopefully that would be the last need to raise the America’s National Debt Ceiling.

Perhaps Fiscal Cliff 3 could kick in on January 1, 2015 with another round of spending cuts and tax increases that would begin reducing America’s National Debt and its interest on the debt which will be well over $300 billion per year by then.

If America were to follow this painful fiscal road, our children and grandchildren could have a realistic chance to make a descent living and recapture some of the Great American Dream that kids growing up in America back in the 1950’s and 1960’s once had. I was one of them. They were great times that are ‘long gone’, but can be rekindled if we, the generations who helped create America’s fiscal ‘nightmare’, accept some sacrifices. I urge everyone in America to accept the ‘Fiscal Cliff’ with a ‘grain of salt’ as it becomes effective on January 1, 2013 and urge your legislative representatives to work towards achieving Fiscal Cliff 2.

View Captain Rick’s entire FISCAL CLIFF Course 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

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This report contains a great 90 second video of QE3 and lots more: http://money.cnn.com/2012/09/13/news/economy/federal-reserve-qe3/index.html?iid=Popular

Captain Rick’s Response: The entire Fed policy of ‘Quantitative Easing’ is wrong, especially this QE3 gigantic purchase of Billions of mortgage debt, of which the liability will be passed on to all responsible mortgage paying Americans. The Fed is acting in desperation because our leadership DC is ineffective. I hope the November election will replace the majority of incompetent legislators that currently represent us. The fix for the problem is to have our legislators fix our National Debt which is heading for the ‘Fiscal Cliff’. Agree/Disagree…Sound off and reply!

Some interesting excerpts I found in the report:

NEW YORK (CNNMoney) — The Federal Reserve announced plans to unleash more stimulus Thursday, in its third attempt at a controversial program to rev up the U.S. economy.

The policy, known as quantitative easing and often abbreviated as QE3, entails buying $40 billion in mortgage-backed securities each month. The end date remains up in the air, as the Fed will re-evaluate the strength of the economy in coming months.

The Fed is wasting no time. The purchases begin Friday and are expected to add up to only $23 billion for the remainder of September.

Meanwhile, the Fed will continue its existing policy known as Operation Twist. Together the two programs will add $85 billion in long-term bonds to the Fed’s balance sheet each month.

In addition, the Fed also indicated that it plans to keep short-term interest rates at “exceptionally low levels” until mid-2015. Previously, the Fed had forecast rates would remain low until late 2014.

Bernanke also admitted that the Fed alone is not strong enough to fix the job market.

“I want to be clear — While I think we can make a meaningful and significant contribution to reducing this problem, we can’t solve it. We don’t have tools that are strong enough to solve the unemployment problem,” he said.

In implementing QE3, the central bank does not use taxpayer money to buy bonds. Rather, it expands the U.S. money supply and electronically credits banks with more funds.

Some excerpts I found significant:

Is there a potential bond bubble now? Absolutely.

If the Fed weren’t buying and if the Chinese achieved their trade goal, ceasing to have a current account surplus (as they have said in their five-year plan) … they will not have the ability to buy our bonds. In fact they would have to sell bonds if they want to go around buying other things.

In a similar fashion, if the Japanese economy begins to pick up, they could also be in a position where they’re no longer buying our bonds.

Put all that together, and you could see interest rates returning to more normal levels. This spills over into equity markets, and if longterm bonds go up, mortgages go up, and the housing market gets hurt.

We would all be the victims.

If they’re sitting there holding longterm bonds, the Fed is at risk of a capital loss. In a sense, that doesn’t matter. It’s a paper loss, they haven’t sold it, they’re just holding it — so I guess in that sense, there is no loss.

But their opponents in Congress will say the Fed just lost $200 billion and in an accounting sense, that will be true. It’s an extra risk that the Fed takes about its own longterm authority.

This is worth a read, Captain Rick

Economy


Martin Feldstein
, an economics professor at Harvard, is an adviser to Republican nominee Mitt Romney. He served as the chairman of the Council of Economic Advisers under President Ronald Reagan.

We spoke with him at the Federal Reserve’s economic symposium in Jackson Hole, Wyo., shortly after Ben Bernanke seemed to make a case for more stimulus from the central bank. Here’s what Feldstein said were some of the potential risks:

The risk that worries me most is the risk about the exit strategy.

We don’t have a clear idea of how far they would have to raise rates to deal with banks that have more than a trillion dollars of excess reserves deposited at the Fed. When the time comes, they may have to raise rates a lot, and at that time unemployment may be higher than it normally is when the Fed normally wants to raise rates —…

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